Morrisons profits plunge 50% after ‘unprecedented’ inflation

Underlying profits for 13 weeks to end of July fell to £177m from £356m in same period a year earlier

Morrisons has revealed its profits dived 50% this summer as it battled “unprecedented inflationary pressures” at its in-house food processing arm.

The supermarket, which lost its spot as the UK’s fourth largest grocer this month when it was overtaken by Aldi, said underlying profits had dived to £177m in the 13 weeks to 31 July from £356m in the same period a year earlier.

Sales for the period rose by 4.5% to almost £4.8bn but were down by just over 3% once new store openings were excluded.

The company, which was bought by the US private equity firm Clayton Dubilier & Rice in a deal worth about £7bn last year, blamed “temporary and transitional factors” as well as inflation for the poor trading, which it said would not continue into the autumn.

Those factors include a switch in the timing of booking income from payments from suppliers related to promotions, which contributed to the fall in profits, and the removal of discounts for NHS workers and changes to the loyalty scheme, both of which meant lower sales.

Morrisons, which has asked senior staff to invest thousands of pounds of their own money in the business in recent months, added that the business had “experienced unprecedented inflationary pressures in our own food manufacturing operations. As a food maker, we feel the effects of inflation earlier than other retailers but conversely are able to recover more quickly when inflation falls.”

Retailers are struggling with soaring food prices as the war in Ukraine combines with the Covid crisis and the effects of the climate emergency to drive up the cost of energy and food production. UK retailers and producers have also been affected by higher import costs due to Brexit and the drought conditions that have hit production of some fresh produce, although the hot weather was good for many soft fruits.

Consumers faced 5.7% shop price inflation in this month, up from 5.1% in August and the highest monthly rate since the British Retail Consortium-NielsenIQ index began in 2005.

However, these price rises do not fully reflect the increase in costs for retailers and their suppliers, who are absorbing some inflation amid heavy competition for increasingly cautious shoppers.

Shoppers have been drifting away from traditional supermarkets – led by Tesco, Sainsbury’s and Asda – to the discounters Aldi and Lidl during the cost of living crisis.

However, these retailers are also under pressure from rising costs. Aldi, which has gained 1.5 million customers in the past three months, said on Monday annual profits had slumped 86% last year. It blamed the need for higher wages and the cost of doing business during the pandemic as well as price cuts.

Contributor

Sarah Butler

The GuardianTramp

Related Content

Article image
Morrisons says profits likely to take big hit from inflation and Ukraine war
Supermarket warns of ‘material adverse effect’ on earnings and sales as grocery market struggles with disruption and rising prices

Sarah Butler

04, Apr, 2022 @4:05 PM

Article image
Morrisons reveals sales and profits dived in 2022 despite putting up prices
Slide blamed on shoppers’ increasing pessimism amid rising living costs and political uncertainty

Sarah Butler

26, Jan, 2023 @5:24 PM

Article image
UK single parents skipping meals due to food price inflation, Which? finds
Consumer body says one in three lone parents forced to miss meals or visit food banks to make ends meet

Zoe Wood

24, Nov, 2022 @6:01 AM

Article image
How Iceland’s legion of shoppers are making ends meet as inflation soars
As UK inflation tops 10%, a discount for over-60s at Manchester’s Urmston branch is proving a lifeline for many

Zoe Wood

19, Oct, 2022 @5:37 PM

Article image
Record 13.3% UK food inflation raises fears of ‘another difficult year’
British Retail Consortium figures come amid concern over economy and rising cost of energy bills

Richard Partington Economics correspondent

04, Jan, 2023 @12:01 AM

Article image
Cost of supermarket budget brands rose 20.3% in year to December, survey finds
Huge rise in cost of own-label ranges outstripped 12.6% increase in supermarkets’ luxury brands

Sarah Butler

18, Jan, 2023 @12:01 AM

Article image
UK food prices soar by fastest rate on record as cost of living crisis bites
Annual rise of 11.6% comes as milk, teabags and sugar become more expensive

Julia Kollewe and Graeme Wearden

02, Nov, 2022 @9:41 AM

Article image
Spam and pilchards are back as cost of living crisis makes cooks more thrifty
Sourdough out, white sliced in – Waitrose says shoppers are ‘making little downgrades’ and choosing cheaper cuts

Zoe Wood

19, Oct, 2022 @11:01 PM

Article image
‘It’s going to be tough’: Sainsbury’s chief on price cuts, inflation and energy costs
Simon Roberts says supermarket is ‘thinking differently’ as it seeks new ways to compete with Tesco, Aldi and Lidl

Sarah Butler

09, Jan, 2023 @1:00 PM

Article image
Morrisons to slash food prices by up to 12%
Cuts to 160 meat, veg and fruit products prompted by accelerating food deflation and intensifying supermarket price war

Sarah Butler

04, Sep, 2016 @10:22 AM